Indian shares fell 0.2 percent in a sea-saw trade on Monday, led by automaker Mahindra & Mahindra, with surging inflation and interest rates and the escalating Greek debt crisis prompting investors to pare exposure to risky assets. Mahindra fell 5.9 percent - its biggest single day loss in more than three months - to 663.05 rupees after the firm's quarterly net profit lagged estimates and it warned higher raw material costs could hurt margins.
--- Inflation, overseas cues weigh on investor sentiment
--- Mahindra & Mahindra falls most in more than 3 months
Shares in Sun Pharmaceutical rose 4.4 percent to 464.40 rupees, its highest closing level in a month, after the country's leading drugmaker by market value posted a 12 percent rise in quarterly profit, beating forecasts. It expects revenue to rise 28 to 30 percent in the fiscal year ending in March 2012, a top company official said. The main 30-share BSE index closed 0.19 percent, or 34.04 points, lower at 18,232.06, after having risen as much as 0.6 percent and then falling as much as 0.4 percent earlier in the day. Sixteen of its components closed in the red.
The market is down nearly 5 percent so far this month and 11 percent on the year. Foreign funds bought shares worth $270 million last Thursday, latest data from the market regulator showed, but are net sellers of $1.5 billion in May. The broader 50-share NSE Index fell 0.1 percent to 5,473.10 points. The undertone was, however, positive in the broader market with gainers leading losers in the ratio of 1.7:1 on a total volume of more than 478 million shares.
"The most important factor the market is not comfortable with now is high inflation numbers. Growth rate will come under pressure due to high inflation and interest rates," said Kaushik Dani, a fund manager with Peerless Mutual Fund. "The market could go down further if the interest rates harden sharply in the near term," he said. India's headline inflation eased to 8.66 percent in April, but upward revisions to past readings and the prospect of higher energy prices will keep pressure on the central bank to raise interest rates in June and maintain its hawkish stance.
The Reserve Bank of India this month raised rates by a higher-than-forecast 50 basis points and said it was willing to sacrifice a bit of growth to tame inflation. Most economists in a recent Reuters poll expect the Indian central bank, which has been one of the most aggressive of major central banks in tightening policy, to raise rates by at least another 75 basis points in 2011.
Investor sentiment could get a boost from normal monsoon rains, which are vital for boosting farm production and rural incomes in the nation of more than 1.2 billion people, said Arun Kejriwal, director at research firm KRIS. "Anything less than normal would be very bad news for the markets because the overall mood is so bad now," he said. The annual monsoon rains have hit the southern state of Kerala two days earlier than expected, weather officials said on Sunday, boosting prospects for a harvest that could spur India's economy.
Cairn India fell 2.5 percent to 338.20 rupees after a source told Reuters a government panel would recommend the operators of its oil field must share the royalty burden in proportion to their stake in the project. This could derail Vedanta Resources' $9.6 billion deal for Cairn India. Cairn Energy agreed in August to sell a majority stake in its Indian unit to Vedanta, but the deal has been delayed due to a dispute over royalty payments.
Reliance Communications rose nearly 3 percent to 87.55 rupees as traders expected the company to beat street estimates in its fourth quarter net profit. India's No 2 carrier owned by billionaire Anil Ambani, is seen posting a 75 percent drop in its quarterly net profit later in the day, marking the seventh straight quarter of falling profit.
European authorities are likely to deliver their verdict this week on Greece's faltering drive to bring its budget deficit under control after a recent spell of bad news raised the spectre of a default. State-run Indian Oil Corp dropped 0.3 percent to 319.60 rupees after the country's largest oil refining and marketing firm posted a 30 percent fall in its fiscal fourth-quarter net profit.
Educomp Solutions gained 0.8 percent to 475.45 rupees after the software services firm posted a sharp jump in its January-March quarter net profit and said its board approved raising upto $250 million. Hindalco Industries ended 2.3 percent lower at 193.05 rupees after the country's largest aluminium producer reported a 37 percent decline in fiscal year 2011 net profit.
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